Implementing the wealth management index tools to build your practice and measure client success

I wrote The Wealth Management Index when our daughters were two, our business was tiny, and life was fun, but complicated.. When I wrote The Wealth Management Index in 1996, it was at a

MANAGEMENT INDEX

by experts familiar with the work fl ows, challenges, and demands of ment professionals who trade the markets, manage money, and analyze investments in their capacity of growing and protecting wealth, hedging risk, and generating revenue.

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MANAGEMENT INDEX

Tools to Build Your Practice and

Measure Client Success

Ross Levin

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or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation You should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profi t or any other commercial damages, including but not limited

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Library of Congress Cataloging- in- Publication Data:

Includes bibliographical references and index.

ISBN 978-1-118-02764-6 (cloth); ISBN 978-1-118-15978-1 (ebk);

ISBN 978-1-118-15979-8 (ebk); ISBN 978-1-118-16022-0 (ebk)

1 Financial planners—United States 2 Financial services industry—United States.

I Levin, Ross Wealth management index II Title

HG179.5.L48 2011

332.6—dc23

2011029929 Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

Conclusion 11

CHAPTER 2

Partners 21

Conclusion 32

CHAPTER 3

Conclusion 83

CHAPTER 6

Pre-meeting 85Post-meeting 87Agenda 92Conclusion 92

or Professional Liability Issues?

Have You Defi ned and Protected Your Business Interests? 138Conclusion 142

CHAPTER 10

What Are the Income and Lifestyle Needs and Wants of Your Family 147Currently and Prospectively?

Have You Evaluated All Current Sources of Income and Potential 159Changes to These Sources?

Are You Fully Utilizing All Benefi ts Available to You? 168Conclusion 189

Is Your Type of Debt Appropriate Given Your Wealth-Management 196Objectives?

Conclusion 201

CHAPTER 12

Have You Determined the Mechanics for Managing Your Portfolio 222and the Evaluation of What Success Looks Like?

Conclusion 228

CHAPTER 13

Have You Articulated Your Charitable Philosophy or Mission Statement? 244Have You Planned For Incapacitation, Elder Care Issues, 248and Final Planning Needs?

Conclusion 251

Epilogue 253

Index 257

I wrote The Wealth Management Index when our daughters were two, our

business was tiny, and life was fun, but complicated Now it is 16 years later, our daughters are heading off to college, our business is bigger, and life is fun, but complicated So while things have changed or shifted in ways that I may not have expected, they are merely different, not better or worse

I bring this up because I have a few operating principles that have helped guide me over most of my life:

• I feel incredibly grateful for all the people I have met who have shared hours or moments with me because they make my life rich

• I believe that while it is really important to think about what we want,

I think it is more important to want what we already have

• I believe that impermanence is part of life

• I believe in the Serenity Prayer—Grant me the serenity to accept the things

I cannot change, the courage to change the things that I can, and the dom to know the difference

wis-These precepts are the groundwork from which the index was created, our business was built, and hopefully, how I live my life I hope that this book is a gift to the profession, only in the sense of sharing the ideas on which Accredited Investors was developed, while acknowledging that many

of you do certain aspects of wealth management differently than we do Our business has been transformed through the sharing of ideas at conferences, study groups, and friendly interactions with people one would think could be competitors But we really don’t compete with each other; each of our funda-mental objective is to serve the right clients for our practices

I have a long list of thank- yous which is guaranteed to be incomplete

I want to thank my business partner of a quarter of a century, Wil Heupel, for walking this path with me from the beginning His skills offset

my weaknesses

The staff at Accredited, many of whom are mentioned in the book, have been a tribute with which to partner They continue to help me grow as they grow While I can’t mention all of the staff, a few in particular helped with this draft of the book Jacob Wolkowitz and Sean P Smith helped develop and test many of our investment planning concepts Steve Gilbertson and Chris MacBean have done extensive work on our spending policies Joan Kurlander used her law background to insure that I didn’t embarrass myself with estate planning, and W Alan Williams put his CPA to use with regard to

my tax planning work Brandon Jones and Lori Dierke gave me the approved Accredited Investors documents and spreadsheets (many of which they devel-oped) to be included in the book, and Suzy Ridenour helped make sure that everything was where it should be

Our clients have come to us believing in how we deliver wealth ment and have shared their lives and stories with us

manage-The biggest outside professional infl uences in my life have come from my two study groups—The Alpha Group and Group 2020 The Alpha Group—my

fi rst study group currently consisting of Mark Balasa, Jim Budros, John Cammack, Chris Dardaman, Harold Evensky, Charlie Haines, Tucker Hewes, Mark Hurley, Deena Katz, Ram Kolluri, Don Phillips, Peggy Ruhlin, Lou Stanasolovich, Mark Tibergien, Greg Sullivan, and John Ueleke—has openly shared practices and friendship with me that has made a huge difference in

my approach to business I met most of these friends through my ment on the boards of International Association for Financial Planning (IAFP), the Financial Planning Association (FPA), and the Certifi ed Financial Planner Board of Standards (CFP)—the payoff for my volunteer experience far exceeded

involve-my contribution

I was invited to join Group 2020 a few years ago, and it consisted of many people whom I knew of but did not know Janet Briaud, Tim Chase, Cheryl Hollins, Michael Joyce, Richie Lee, Kathy Lintz, Ron and Suzette Rutherford, and yes, Charlie Haines again, opened their fi rms and hearts to

me and have continued to help me grow and see things differently

There are far too many others in the profession to name, for example, all the people with whom I served on the boards of the IAFP and CFP Board

of Standards, the number of writers who have asked for my opinion and sometimes even used it, and the various people who have e- mailed me, called,

edited my chapters almost before I wrote them and put up with my ing of deadlines (okay, I am a Myers/Briggs ENFP); my acquisitions editor, Laura Walsh, believed in the book and sold it to the publisher; and Vincent Nordhaus, who was responsible for the editorial production.

miss-My biggest thank you goes to my wife Bridget, and our daughters, Mimi and Vera, who continue to show me unconditional love, even when I have bitten off more than I can chew

MANAGEMENT INDEX

When I wrote The Wealth Management Index in 1996, it was at a time when

we were experiencing a bull market of epic proportions As clients were ing money hand over fi st, we were trying to temper their enthusiasm with

mak-an approach to wealth mmak-anagement that would measure their personal cess based on all the things that they had expressed as important to us—and many things which they had not considered We were implementing a tool that consolidated all the various aspects of fi nancial planning into a process

suc-by which the client could begin to understand the many components of their

fi nancial life on which decisions needed to be made

Much has changed since 1996 and nothing has changed We still need

to help clients understand the importance of all areas of wealth management and they still often place too much importance or attention on asset manage-ment The most important change for our fi rm is that we have a much bigger practice—more than 35 employees, around a billion dollars of managed assets, and an approach to building a business and delivering comprehensive wealth management in a way that has been true to our values

My intention with this book is to open up our practice to you as a way for you to incorporate those things which you fi nd benefi cial and let go of those ideas that may not resonate with you This is not a book on how to run

a practice; my belief is that each wealth management practice has to discover its own unique role in the vast space of helping clients achieve their objec-tives But regardless of what your business currently looks like, I know that you will benefi t from me sharing the stops and starts that we have experienced

in trying to do what is right for our clients and our business We certainly

CHAPTER 1

Turning a Concept

into a Practice

impermanence Yet it is important to draw a line in the sand as to what your

fi rm stands for and who you wish to serve

A few years ago, I invited 20 practitioners from around the country to make a donation to the Foundation for Financial Planning and in return spend a day with us to meet our staff and go through all the aspects of how

we do business We labeled this program Be Our Guest, and since then other

fi rms, in concert with the Foundation, have also done this When we fi rst chose to offer the glimpse into our fi rm, we discussed whether we should exclude fi rms from our community from participating Was there a risk that our openness could be used against us in competition for clients? Only if we believed that there were a fi nite subset of clients and it was in the best interest

of them to work only with us That is not our belief There are a number of great fi rms doing great work for a wide variety of clients In fact, just sub-

scribe to Bob Veres’s newsletter, Inside Information or regularly read Financial

Planning, Investment Advisor, FA, or Investment News and you’ll see how many

different ways there are to succeed in this business I know that our fi rm will continue to grow because our offering resonates with a certain subset of the client population Certain prospects are better suited to our comprehensive practice than others It is always in the prospect’s best interest to work with a

fi rm who can not only deliver sound advice, but do so in a way that reaches that prospect

As I write this book is there a risk that fi rms may try to capture our intellectual property and become more like us? I could not think of a greater compliment But what I really hope is that fi rms take some of our ideas and make them their own And I hope that they improve upon some of the things that we are doing and continue to share them with others so that clients can

be served in ways that improve the quality of their lives.1

The Format

This book is both a practice management guide as well as a tool introducing, explaining, and implementing the Wealth Management Index (WMI) In the area dedicated to practice management, I will go through how we run our practice I will be covering our technology, processes, communication, and client interaction I will go through what we do when the prospect fi rst walks

break down all the areas of the WMI and how we discuss each area in the client meetings It will also include some of the tools that we developed or purchased to help in our analysis.

While I am writing this book, it is based on all the efforts put forth by

my partners, our staff, meetings that I have attended, and my two key study groups—the Alpha Group and Group 2020 My coworkers will be the fi rst

to tell you that I am not a detail guy, so it may seem somewhat ironic that I developed a concept around detail But it was really a way to protect me from

my weaknesses and emphasize my strengths Talking with the clients and understanding their motivations was more fulfi lling for me than going step

by step through tax returns and documents The index made sure that I didn’t miss anything when forced to do the necessary work that was less engaging for me Each of us has areas that resonate with us and we would be far happier spending most of our time doing these things But as we grow a business, we may fi nd ourselves working doing the things that don’t represent our callings, but are necessary to help our client’s reach theirs Even if you only use the index for its checklist component, you will be certain that you haven’t missed some key area of your client’s plan And you won’t be facing the unmitigated dread we have all felt at some time in the past when a client asks “why haven’t

we discussed this.” Our practice has become large enough where I am ing the majority of time doing the things to which I can add the most value

spend-I describe myself as someone who knows better what is happening 10 years from now than 10 minutes from now, and now I spend most of my time read-ing, writing, thinking, and working with clients A dream job

Fortunately, my partners are the opposite of me This started with me creating the initial concept of the WMI, but Wil Heupel, my co- founding partner of Accredited Investors, Inc., making it possible to use this in our practice From there, people within the company have taken the role to great lengths with an ardent fervor of how to communicate what we are doing in a way that clients can receive the information

The Wealth Management Index Overview

The index itself has changed from when I fi rst wrote the book We have modifi ed categories and included new ones The wealth management land-scape is dynamic and it has been important for the index to keep up with

in a score; they are interested in the progress that they are making toward their objectives This means that the scoring portion of the index has been changed within our practice to a progress component We communicate to the client where we stand with the various areas as we are going through them There is

no set point when a client is done with planning, so progress is forever tored But I have heard from many of you that scoring was something that you valued about the index For those of you who are interested in this, the scoring component still exists There are more categories and more decision points than in the fi rst version, yet not too many to make scoring impractical

moni-We use the index by creating main categories with subcategories neath them The subcategories are how we outline the goals for the client and report progress back to them through our agendas, meetings, and follow- up letters Each subcategory has a number attached that fl ows through our WMI database.2 The key advantage to this system versus the original WMI is that

under-as new areunder-as begin to develop, we can add them more eunder-asily For example, long- term care insurance was a relatively nascent industry when I fi rst wrote

The Wealth Management Index Today it is an area that we review with every

client, regardless of whether or not we recommend the purchase of a policy.For this chapter, I simply will lay out the index, without providing

a detailed explanation as to its use The fundamental premise of the index is a blend of the right and left brains We need to combine the thinking and feeling aspects of the client in order to best serve them Therefore, the index does not simply give technical solutions In addition, it creates a framework for opening

up discussions in the areas to be analyzed But f you are the type who wants to know who wins the reality TV show without watching the episode, then by all means, jump to Chapter Nine and get right into the guts of the index

The Wealth Management Index

There are fi ve key components to the index:

1 Asset Protection (Preservation)

2 Disability and Income Protection (Protection)

3 Debt Management (Leverage)

4 Investment Planning (Accumulation)

5 Estate Planning (Distribution)

Asset Protection (Preservation)—25 Percent

Have you articulated a life insurance philosophy?—34 percent 3

111 Assess the living and liquidity needs of survivors and dependants—

121 Review medical insurance including liability limits, co- pays, Medicare, and COBRA—20 percent (1.65 percent)

122 Understand feelings regarding long- term care and evaluate needs—

20 percent (1.65 percent)

123 Determine amount of self- funding on property/casualty deductibles and limits—10 percent (0.825 percent)

124 Understand personal liability needs—10 percent (0.825 percent)

125 Review professional liability limits and appropriate tail ance—20 percent (1.65 percent)

insur-126 Review benefi ts and drawbacks of asset transference and retitling for long- term care or liability considerations—20 percent (1.65 percent)

Have you defi ned and protected your business interests?—33 percent

131 Evaluate business structure—10 percent (0.825 percent)

132 Determine business valuation and develop succession plan—

30 percent (2.475 percent)

133 Establish/review buy/sell and business continuation agreements—

20 percent (1.65 percent)

134 Determine needs due to disability—20 percent (1.65 percent)

135 Establish appropriate funding mechanisms for buy- out upon death—20 percent (1.65 percent)

211 Review current cash fl ow and budget needs—30 percent (2.1 percent)

212 Determine the amount of income that you wish to replace if you were to become disabled—20 percent (1.4 percent)

213 Determine purpose and costs of one- time large expenditures ing education, vacation homes, or assistance for family members—

includ-10 percent (0.7 percent)

214 Establish your fi nancial independence goals and the price to be paid

to achieve them—30 percent (2.1 percent)

215 Review your annual charitable giving objectives and how they should

be funded—10 percent (0.7 percent)

Have you evaluated all current sources of income and potential changes

to these sources?—25 percent

221 Understand current and projected earned income for your family—

Are you fully utilizing all benefi ts available to you?—15 percent

231 Review participation in pre- tax reimbursement and cafeteria plans—

25 percent (0.75 percent)

232 Determine levels of participation and type of company retirement plans (qualifi ed and non-qualifi ed)—25 percent (0.75 percent)

supplemental retirement plans on self- employment income are appropriate—25 percent (0.75 percent)

Are you proactively engaged in tax planning for you and your

243 Review gifting opportunities and strategies—20 percent (1 percent)

244 Determine whether to accelerate or defer income and/or deductions for tax bracket or AMT reasons—30 percent (1.5 percent)

245 Evaluate the recharacterization or conversions of IRAs to/from Roth IRAs—20 percent (1 percent)

Debt Management (Leverage)—10 Percent

Have you established your philosophy regarding using savings or

consider-332 Review the best fi nancing terms and deductibility terms on lines of credit and alternative debt—33 percent (2.31 percent)

334 Determine your current ratio as well as credit ratings—33 percent (2.31 percent)

415 Determine a suitable asset allocation—60 percent (9 percent)

Have you determined the mechanics for managing your portfolio and the evaluation of what success looks like?—40 percent

421 Decide accounts to consolidate, transfer, or maintain separately and how they will be handled for policy and advice—55 percent (5.5 percent)

422 Determine asset location—15 percent (1.5 percent)

423 Review portfolio performance relative to appropriate benchmarks—

30 percent (3 percent)

Estate Planning—20 Percent

Have you a philosophy on wealth transfer?—70 percent

511 Determine the amount of after- tax inheritance and how it is to be received—40 percent (5.6 percent)

512 Determine survivor liquidity needs outside of trustee control and to pay estate taxes—10 percent (1.4 percent)

513 Direct proper ownership (including revocable trusts), benefi ciary designations, and determine guardians and trustees—10 percent (1.4 percent)

514 Determine where estate discounting techniques and wealth- transfer entities—Family Limited Partnerships, Qualifi ed Personal Residence Trusts, Grantor Retained Annuity Trusts, defective trusts, Irrevocable Life Insurance Trusts, and others—are appropriate—10 percent (1.4 percent)

515 Finalize documents and Crummey notices—10 percent (1.4 percent)

516 Determine whether a family meeting should be facilitated and appropriate family governance prepared—15 percent (2.1 percent)

values—50 percent (1 percent)

532 Evaluate lifetime giving and/or giving at death—25 percent (0.5 percent)

533 Evaluate charitable lead trusts, remainder trusts, gift ties, donor- advised funds, and private foundations—25 percent (0.5 percent)

annui-Have you planned for incapacitation, elder care issues, and fi nal

planning needs?—20 percent

541 Discuss writing an ethical will as well as creating a DVD through

a personal historian to communicate your values—30 percent (1.2 percent)

542 Implement power of attorney documents for fi nancial and health care purposes—40 percent (1.6 percent)

543 Establish pre- need written procedures for family to execute fi nal wishes—30 percent (1.2 percent)

Tracking Progress

Overwhelmed? Actually, this process makes it easier to keep track of the areas

on which we are working No longer do we fear that something is not being covered, because it is all laid out in a manner that is relatively easy to follow.It’s clear, though, that no practice can work on everything at once Later

in the book, I will spend considerable space going through the analysis of the component pieces of the index There is a signifi cant amount of advice being delivered to the client We have found it most effective for meet-ings to break down the fi ve main categories of the WMI and tackle only one or two of them in the client meeting Each meeting uncovers further work to be done and new objectives to be established Therefore, updates

on the previous meeting’s assignments are provided as new analysis on the current area is being introduced Essentially, the wealth- management plan

is rolling

This is central to the theme of what we do You cannot deliver a fi nancial plan once and be done Any decision closes the door on certain possibilities and opens it on others Some prospects will think that the plan would be delivered and after that it is mostly housekeeping and investment manage-ment I have said that wealth management is like running a marathon—just

This points out another truth about what we do—over the life of a client relationship, there will surface one or two things that inevitably will make the relationship incredibly valuable to the client In our practice, we have handled deaths, disabilities, chemical- dependency issues, sales and purchases

of businesses, marriages, divorce, and everything else that can happen in life Invariably, after any of these startling events occur, clients will become more grounded in the relationship and fully understand the value of comprehen-sive wealth management

Since there are so many things that must go on at once, we have lished a tracking system that measures the progress we are making on each objective The system involves 10 components:

estab-WMI—status updates for goals

Analysis and Recommendation Completed 6

As we go through each of the areas of the index, we are monitoring our progress in all of our communications to the client in the following way:

Objective is established and categorized using the numbering system.

For example, a client letter or agenda item would state:

241: You wish to insure that you are withholding enough from your regular earnings to avoid having to pay estimated taxes on your outside earnings.

We then discuss how this objective was decided

Since you feel that last year’s outside income was unusually high, you would rather, if necessary, adjust withholding later in the year to avoid penalties.

and implementation, the corresponding number will change These numbers serve as the tool for scoring the index.

If a strategy was implemented, the client would get a 10 in that particular area under which the goal was stored and therefore get full index credit If

we only presented the analysis, the client would receive a seven and therefore get 70 percent of that particular component If there are multiple objectives under the same component, then each objective is scored separately to create

a combined score for the component

Conclusion

The practice of comprehensive wealth management is complex There are constantly moving targets, various assignments and follow- up, shifting pri-orities, and personalities A disciplined, accountable approach increases the likelihood of success in the client relationship and client outcomes This book will share with you the things that we have done to build a thriving practice that combines systems to create consistency coupled with the approach that ensures each client a unique and personal experience

Notes

1 I think Roy Diliberto from RTD Financial Advisors based in Philadelphia was the

fi rst one I heard describe our purpose as wealth managers “to improve the lives of our clients.” This has always resonated with me because it speaks to the depths to which our relationships are formed and the importance of the work that we do

2 Our database was developed internally by Lorenz Oliver- King, who spends his days improving it and upgrading it The advantage of this is that we have

a database for customer- relationship management that is centered completely on how we do business The disadvantage is that we have a full- time employee updat-ing it and modifying it If we were starting over, we would probably purchase

a system like Junxure (www.junxure.com) or ProTracker (www.protracker.com) which can incorporate some of our principles but by which we could offl oad the programming to a company established to do it

3 The formula for the value of each component of the index is determined by

fi rst taking the value of the particular category (Asset Protection, Disability and Income Protection, Debt Management, Investment Planning, and Estate

and dependants—50 percent) The value of the example above would be 0.25 × 0.34 × 0.50 = 4.3 percent of the total index.

What Do You Want to Be When You Grow Up?

When I started in wealth management in 1982, I had no clue as to what the

fi eld would become or how my future would be shaped And as we grew from

a solo shop to a partnership to a business with three owners and more than

35 employees, I was struck by several things that infl uenced us over the years This list makes sense for us; I know that other fi rms may have a different (and even contrasting) viewpoint

1 Avoiding big mistakes may be more important than getting big decisions

right Over the course of several years, we have survived problematic

hires, working with the wrong types of clients for our offering, istrative snafus, regrettable investments, and even a misadventure into a whole new business—becoming a sports agent The key for us, though, was honestly reviewing the situations into which we got ourselves, and quickly trying to extricate ourselves from the problems For example, after I just fi nished negotiating with the Green Bay Packers on a contract for our only client, the General Manager at the time asked if I would be

admin-CHAPTER 2

Building and Operating

a Practice

built their businesses through acquisitions This is something that we have never really attempted One of the strengths of a fi rm like ours

is a very clear culture We work well with a certain type of client, in a particular way We look for staff that has certain characteristics which are consistent with this culture Many of our hiring mistakes came from bringing in senior people from places with a radically different approach

to business We were enamored with credentials or background, but lost sight of the fact that the very act of success in these other environments could preclude the same thing from happening in our environment This

is one reason why we get concerned about purchasing other practices

We are not only buying the clients, but their shared history with the wealth manager While growing through referrals and other marketing approaches is slower, it has some distinct advantages Clients who come from other clients have a better sense of what they are getting and often share some personality traits with their referrers—with whom we have a successful relationship Also, gradual growth puts less of a strain on cash

fl ow and enables you to invest resources on your strengths As Marcus

Buckingham writes in his book Now Discover Your Strengths, “Each

per-son’s greatest room for growth is in areas of his or her greatest strength.”1

I believe that this is true of practices as well By focusing on the areas where we have been successful, rather than entirely new areas that would come from the integration of another practice, we have built a sustain-able and enduring business model

3 Don’t let your reach exceed your grasp The big decisions that we have

made, such as buying our offi ce building, were really not that big When

we bought our building, we were faced with a leasing decision for 8,000 square feet with no opportunities for more contiguous space if we grew versus, for virtually the same payment, purchasing a 16,500 square foot building that we could renovate This building will allow us to grow to around 55 people While there was certainly a resource commitment

to the renovation project, we don’t fi nd ourselves in lease negotiations with the possibility of moving every fi ve years In the February 2011 edi-

tion of Investment Advisor magazine, Mark Tibergien writes that “a study

on operating performance conducted three years ago {2008} revealed that 25% of all independent fi rms with assets over $100 million had at least a second location.”2 We believe that we have such a small market

become, I think one should do this very thoughtfully and carefully Just

an aside, we try to make sure that we have the staff in place to bring in new clients before we develop marketing initiatives If we are successful with the campaign, we don’t want to end up compromising our service because of the new business

4 You control far less than you think I keep a copy of Reinhold Niebuhr’s

Serenity Prayer on my desk: “God, grant me the serenity to accept the things I cannot change, Courage to change the things I can, And wisdom to know the difference.” These words have had a tremendous impact on me as things swirl around me I remember being quoted in

an article several years ago that my partner and I wanted to keep our practice small Guess what—we couldn’t Happy clients referred us to their friends and family Great staff needed opportunities to grow and

be challenged Success often begets success Economists Brian Arthur and Kenneth Arrow describe path dependence and increasing returns Returns can expand when you fi nd a niche in which you can excel or dominate Positive feedback loops are created where success leads to more success

5 Good fortune plays a pretty signifi cant role If you do everything that I

suggest in this book, you will still have a vastly different practice than what we have It may be better, it may be worse, but it assuredly will be different For example, not all of our clients refer people to us We have been fortunate that some of our bigger clients also happen to be good referrers While there may be programs we could institute to increase the chances of obtaining referrals, it is still a little bit of a crapshoot as to who will refer you to whom Great business or great fortune? I think good business practices enable you to jump on good fortune as it’s presented, but if it never shows up, there is nothing on which to jump Most of us should take a step back and pay attention to the fact that our success has come from not simply our own choices, but from the pioneers of the industry before us as well as a sizable dose of good fortune

6 None of us really know what anyone else is doing or why It is easy in this

business to get discouraged You may look at someone who appears to have great success and wonder how the heck they could have done it The truth is you don’t know if they really have done it nor do you know what they have done When I give talks on practice management, I try

to be as open as possible But my talks still are my interpretations of

decisions could we have made that would have enhanced or impeded our growth? In the complex adaptive systems in which we operate, there are

an infi nite number of choices and results from those choices

7 Resilience and forgiveness are essential There are inevitably going to be

things that go wrong, but how you recover from them, and how you both ask for and give forgiveness will have a huge infl uence on your fate Forgiveness is forever giving up hope of changing the past At times we need to forgive others for things that they have done and at other times

we need to forgive ourselves for things that have happened During the dark days of ‘08, it was very diffi cult to look clients in the eye and say that our diversifi ed portfolios were down less than the market’s but way more than we had hoped We were genuinely sorry that clients were feel-ing anxious But unless we forgave ourselves, we would never have been able to stay engaged with clients during these tumultuous times—which were thankfully very short- lived

Integrating some of the concepts listed previously, the real question becomes what is the type of practice that you wish to have I have been a

fi rm believer in crafting your personal plan before developing your business plan I have seen far too many people with successful practices and bankrupt personal lives I believe that the great thing about our fi eld is that we can have great fl exibility as well as great opportunity

One of the reasons that we began to grow the practice was because my wife (Bridget) and I had young twins Bridget and I knew that we wanted to

be able to create experiences for our family Since our practice at the time was quite small, vacations never really were vacations—it felt like I had to be on call to handle client situations This was especially true because my partner, Wil Heupel, and I had discrete areas of expertise; I ran the investment plan-ning area and Wil handled the estate planning Both of us were involved in general fi nancial planning By beginning to build the fi rm, we could have people who could handle questions and issues when either of us was gone This may seem obvious, but it is amazing how little time you get to refl ect on the practice when you are steeped in the middle of it As the fi rm grew, I was able to create pockets to spend more time with my family We were able to take three to fi ve weeks off at a time to visit various places in the world Now that our daughters are heading off to college, we have few regrets about the

2 How do you want to serve them? Obviously, our stake in the ground

is the Wealth Management Index whose essence is comprehensive and personal wealth management This decision means that we need more time with clients and more staff to execute our vision Because of the time commitment and necessary staff resources, we also have to have higher minimum retainers or fees

3 Who do you want on the bus? This is right out of Jim Collins’s Good

to Great In describing great companies, he says “they fi rst got the right

people on the bus (and the wrong people off the bus) and then fi gured

out where to drive it.”3 Traditionally, we have been lousy at this We originally hired people that we liked rather than people who could do the job We were slow to let people go who were not able to do the job When they eventually were transitioned out or quit (because they could not handle the position) they would leave frustrated with the organization and negatively communicate things about us that we may have felt were unjustifi ed but, as professionals, did not feel it appropri-ate to try and refute We have learned a lot over the years I think the best advice is to hire slowly (but by all means hire), put new hires on a probationary period, manage hard during that period, and give honest assessments as to their likelihood of making it This is not only right for the business, but it is the humane thing to do Deena Katz likes to call this “freeing up their future.”4

This is different than managing it Setting strategic directions needs to

be done in a climate of possibility I believe that this can best be handled through quiet time

These decisions are equivalent to Lorenz’s butterfl y effect for chaos theory—initial conditions have a huge impact on the future that you are going to craft for yourself If you start by taking any client who walks in the door even though they are not with whom you really want to be working, you will be unhappy If you do a great job, you will continue to get referred to more clients of the same type Eventually, your practice is a mess

Accredited Investors, Inc Guiding Principles

We have some guiding principles for our fi rm that have helped us to defi ne who we are and who we want to be We share these principles with our clients

We believe that our purpose as an organization is improving the

individ-ual and collective lives of all that we serve This statement is meant to include

clients, staff, community, and others with whom we are involved Our mental premise is that we believe in the value of comprehensive professional wealth management We see this value every day at work with our clients Our purpose is to help the client determine what is important to them and bring congruity between their actions and their values Our aspiration is to build a committed relationship with our clients and sustain this relationship over their lifetime In order to do this, we have core beliefs that we tell our clients:

funda-• Wealth management involves maximizing your wealth At Accredited Investors, Inc., we defi ne this as integrating all of your resources—fi nancial, emotional, physical, and spiritual

• Our planning expertise will help you strike a healthy balance between these resources

• The in- depth level of communication between us will determine our level

of success Wealth management is personal, so we often ask that you share with us some of the many things that you don’t share with anyone but your family

• We believe in integrating the fi ve key areas of wealth management—Asset Protection, Disability and Income Planning, Debt Management,

cannot be made solely based on their fi nancial impact.

• We believe that a competent and fulfi lled staff is critical to develop and execute the goals of our clients We treat our staff with respect and ask that our clients do as well

• We believe that we should enjoy this process and trust each other If that stops happening, we believe our relationship needs to be reevaluated

• We believe in the value of synergy A healthy communication and exchange of ideas between all related advisors is essential to achieving your desired success

Our Commitment to Clients

In addition to the guiding principles on which our fi rm was built, we have commitments that we make to clients

• We are committed to independence as a fee- only wealth- management fi rm Accredited Investors does not accept compensation from third parties for product recommendations, nor does it accept or give fees to other profes-sionals for referrals We will seek to remove any and all confl icts of interest from our relationship

• We are committed to acting as your fi duciary We will treat your assets, personal information, and values with the same care we would demand for ourselves

• We are committed to protecting your privacy Your personal information will be held in strict confi dence and will never be shared with third parties without your prior consent

• We are committed to integrity With that, we are committed to our pany values, which will never be compromised

com-• We are committed to being non- judgmental We will respect your dreams and values as you declare them and share them with us and will tailor our advice and services to refl ect these dreams and values

• We are committed to providing you with supreme service Our staff will respond to your emails and phone calls as soon as possible In addition, we will assist you by any means necessary to provide requested information or follow through on the implementation of any recommendations

• We are committed to earning your complete trust in us

• We expect you, our clients, to be honest about your goals, personal information, and fi nancial history.

• We expect you to be open to the challenge of exploring deeper meaning in money and your lives

• We expect you to notify us if you do not completely understand or feel discomfort with any recommendation, strategy, or direction

• We expect you, our clients, to treat our staff with respect Should a confl ict arise, however, we would like to know Please express and discuss your concerns with principals

We have been in situations where very successful clients did not treat our staff in a way with which we were comfortable We have met with clients and explained what we observed, asked clients for their perspective, and discussed what we felt needed to be changed One particularly aggressive client told us that he had never been approached about this before and was very apprecia-tive of our candor He has since modifi ed his behavior If he slips into old patterns, we talk with him about it

Our Commitment to the Community and Our Employees

Again, we believe that we have a role in the world and want to represent selves in a manner consistent with our values

our-• We strive to provide a fun and fulfi lling work environment for our employees

• We are committed to supporting the professional development of all of our staff members

• We believe in giving back to the communities that have provided so much for us As part of this commitment, our offi ce closes once or twice a year for a day of service Our staff is also given fi ve paid personal days each year with which to volunteer for any non- profi t organization

• We are committed to giving back to our profession through the sharing of ideas and resources Many of our staff members are active in industry organizations

We try to invest a lot of resources in our staff We close the offi ce three or four times a year for two- day sessions with an industrial psychologist who helps

us work on issues like active listening, assertiveness, making proper apologies, and other areas that will improve how we relate to each other and our clients.5

the organization We choose to pay our own way for due diligence meetings and seminars rather than have the fund companies pay our way Again, we are trying to maintain our independence.

Partners

My founding partner, Wil Heupel, and I have very different personalities

I am more strategic and future oriented Wil is more concrete He can take

my ideas and make them work When we added Kathy Longo as a partner, her personality was somewhere between ours

We have worked very hard on our relationships We have used several outside consultants—business and industrial psychologists—to help us develop communication skills, assertiveness, and openness among us that have made the partnership work We went into the partnership with the attitude that when it gets hard, we were going to do whatever we could to get through it Our business took a very long time to build, so the initial years were diffi cult I think we survived because of our trust in each other and the belief that we would be there for each other, as well as our shared vision of what we were going to try to accomplish We didn’t have clients, but we had ideas on how we could serve them if we ever did!

The other factor that helped was that initially both of our wives had good jobs While Wil and his wife, Julie, had two kids, Bridget and I had no children The fact that our wives were bringing home enough money to handle our day- to- day living costs allowed us to indulge in our fantasy of building a business Had we not had this, it is diffi cult to know whether we could have stuck things out

Partnering is one of the most diffi cult things that you can do I often get people calling me to ask questions about forming partnerships Let me share with you some of the things to think about:

• In a 50/50 partnership, who has the power to make decisions when you don’t agree? In Wil’s and my relationship, I tended to be able to make the big directional decisions while Wil was able to make the running- the- business choices We almost always agreed, but when we didn’t and

a decision needed to be made, we would defer to me for the strategic decisions and Wil for the operational ones This has continued as we have

Kathy joined us, she had similar views If you are not aligned here, the partnership will almost certainly fracture at some point.

• What are the skills that you bring to the table and how are they valued? Wil and I had very different strengths and weaknesses Since I was the external business developer, I initially valued my contribution to the fi rm as more valuable than Wil’s—even though we split everything 50/50 It was only after I recognized that I could not do this on my own that the partner-ship really began to work I think it is better when partners have different capabilities and when they recognize that there are certain things that each individual simply may not be good at I think partnerships thrive through admissions of weakness rather than exaggerations of strengths

• Talk directly to the person rather than create triangles With three partners, when one of us has an issue with someone else, we talk directly to each other If we can’t resolve it, we bring in the other partner It is very easy for two partners to gang up on the third one I think that we have done a good job of avoiding this Honest feedback is crucial to a successful relationship When we have been unable to deliver it to each other, we bring in someone from the outside

• Use testing to determine compatibility and to anticipate problem areas

We use a variety of tests for people coming in at different levels of the fi rm These tests are administered by an outside consultant The primary tests are: a) the Myers- Briggs Type Indicator® which was created by Katherine Briggs and her daughter, Isabel Briggs Myers to sort personalities using four Jungian dichotomies—Introversion/Extroversion, Sensing/Intuition, Thinking/Feeling, Judging/Perceiving; b) The Fundamental Interpersonal Relations Orientation-Behavior™ instrument used to measure how people interact with each other; and c) The CPI 260® which describes individuals the way others see them

• Work on a buy/sell which describes the agreements to which you adhere regarding who can own the business, how valuations are determined, what should happen if the business dissolves, how a payout can occur, how dis-ability is treated This is useful to start even before you partner This is an expense that will save you in the long run If things fall apart during the buy/sell process, consider it money well spent and move on We have had

a few buy/sells in our years together They provide remarkable insight as to what each of the partners is thinking and how they view the partnership

the back end We were bringing in a career- changing attorney and spent several months trying to answer every imaginable question and address all his concerns If you want certainty, a wealth- management practice is not the best place to fi nd it Needless to say, after we addressed all the issues,

he quit two weeks into it The change was too dramatic In retrospect, we wanted the credentials more than the individual—a dumb, costly mistake

• Make sure you really want a partner A partner is not a lackey Some of

us who have been around for a while think we want a partner because we have this valuable asset that we need to monetize If you are not willing to relinquish control, do not have a partner

The best part of having partners is that you do not feel as isolated in your practice There are a lot of decisions and responsibilities in running a successful practice Having others to bounce ideas off of and help execute is

a tremendous benefi t Ironically, as the organization grows, it can be quite lonely running it

I used to believe that I could have a fl at organization where everyone is treated equally I learned, though, that there is no such thing An owner of

a business simply has more power because they have the ultimate say in the future of those they employ As a result, creating appropriate boundaries and using power effectively are essential I like to engage individuals in deep con-versation People tell me that I live in subtext—I am looking for the meaning behind the words rather than just the words This is uncomfortable for some employees who don’t wish to share so much with their employer It took me

a long time to realize that it may not be appropriate to engage in deeper versations with all employees

con-Broader Ownership

As fi rms grow in size, the concept of partners has changed dramatically Many

of us who have been practicing for a number of years have a next generation of employees to whom we want to sell pieces of our practice In Mark Hurley’s comprehensive white paper he talks about a number of reasons why internal sales

to employees can be a good idea—especially for a fee- only wealth- management

fi rm Following are some of the benefi ts that resonated the most with me

fi rm, but also the downside risk by having employees exchange a portion

of their current compensation for a portion of a fi rm’s future earnings

3 It helps institutionalize the fi rm’s client relationships

4 It helps to institutionalize the fi rm’s marketing capabilities and brand by granting tangible and leverageable incentives in growing the fi rm since the fi rms’ stock is worth more.6

Several fi rms distinguish clearly between ownership and ment Even though someone may be an owner of stock, they do not necessarily have infl uence over how the fi rm is being managed

manage-The hard thing for most of us to get our arms around is the concept

of ownership as compensation, rather than as giving up a piece of our soul

A public company issuing stock options has no such feelings attached to this act As our industry grows up, we probably need to view this subject differently

In talking with some other fi rms who have expanded ownership, the biggest issues that they faced were the lack of entrepreneurism in the next generation and the concern that when their practices were eventually sold, the minority shareholders did not get enough money to be able to walk away from the business and, therefore, made the deal drag out longer than it otherwise would have

With our own practice, it is interesting to note the difference between those who think like a business owner and those who think like employees During the market meltdown of 2008 and early 2009, we called our staff together and let them know that we were not laying off anyone and that we were going to hold salaries constant We let them know that we would not be giving salary increases until our revenues recovered We also said that if things stayed bad (which we did not expect), we would evaluate looking at suspend-ing our 401(k) match One of the staff members asked whether they could take a salary cut and then have a disproportionate increase when our revenues recovered He was willing to share our pain for a potential to participate in the rebound Most employees don’t think like that

The twenty- fi rst century wealth manager may have been trained in college to enter the fi eld, circumventing the need to acquire clients They have the technical knowledge necessary to deliver a quality product This background, coupled with business owners who hold things close to their vest, make it very diffi cult for these employees to get a real sense of what it is

understand the grease for the wheel of the business Lou Stanasolovich of Legend Financial Advisors, among others, has practiced open- book manage-ment with his staff While we have not been comfortable with this level of openness, for Legend’s fi rm it has helped put everyone on the same page with regard to what they are trying to accomplish and how they are progressing toward their goals.

The most important misconception to overcome is that you have worked hard over the years and when the time is right you will sell the busi-ness The White Knight approach to business continuation will leave you hanging on long after your armor has rusted From our own practice, our business continuation planning has taken years, with several missteps along the way If you are serious about serving your clients after you no lon-ger are active in the fi eld, then dealing with this issue needs to be on the front burner

Another misconception is that you will fi nd a slow deer to sell your business to We are the hunted, not the hunter, so the likelihood of a buyer knowing less than we do is silly If you think about strategic or fi nancial buy-ers interested in your practice, they have far more acquisition experience than you do You may do this once (unless you are like my friend, Ram Kolluri, who has successfully sold his business a few times), but your buyer has done this several times Don’t be fooled; these buyers are usually smarter in this area than we are

Staffi ng

Our approach to building a staff has also been very incremental When Wil and I fi rst started, we hired a secretary/assistant who was making more than

we were Over time, we continued to build our staff based on allowing each

of us to focus on our core competencies We knew that Wil and I were better

in front of clients working at the strategic level than we were entering data into spreadsheets

Hiring good staff obviously has risks and rewards and problems and opportunities We continued to improve our hiring over time—both people and processes The biggest mistake that we made in hiring was having budget dominate our decisions Generally you get what you pay for Once we began hiring the best people for the tasks at hand, relatively quickly they paid for themselves But this was a giant leap of faith

I attribute it to the difference between really viewing ourselves as fi duciaries putting the client’s interests fi rst rather than making decisions that are suit-able for the client This is not a minor distinction, although it is often down-played People who have come from places with a real fi duciary standard should be asking “Is this the right thing to do and the best thing to do?” This

is a different question than “Is this appropriate for the client given the cumstances?” In fact, an important distinction is recognition of from where

cir-we came Our background may help us see how cir-we address a problem or a prospect If someone came from a background where acquiring clients was more important than acquiring the right clients, it may be diffi cult for them

to discern the difference

We prefer to hire people with experience rather than right out of school, although we have had success with those coming out of the excellent col-lege fi nancial- planning programs The advantage in hiring people with more experience is not about knowledge as much as it is about them seeing the dif-ference between how we operate as compared with other organizations They can see quickly whether we are a good fi t and are less likely to fall victim to the grass- is- always- greener thinking

One of the most important books that impacted our hiring was Topgrading

by Bradford D Smart He discusses the value of human capital and says, “The single most important driver of organizational performance and individual managerial success is talent.”7 His premise is that organizations have A, B, and C players The most successful organizations are fi lled with A players, manage their B players, and do not hire or keep C players Smart defi nes topgrading as: “To fi ll every position in the organization with an A player, at the appropriate compensation level.”8 Someone may be an A player in one role and get promoted to a position in which they are no better than a C (think about the sales person who ends up becoming sales manager) It can also work the other way

In our company, we hired an extremely bright person to work on the comprehensive wealth management side He was a nightmare there His style did not work well with his managers, he was disinterested in many aspects

of the comprehensive plan, and he questioned everything His profi le was perfect for our investment- management team, though This was a great hire, but for the wrong area He has since earned his Chartered Financial Analyst and is managing our investment area

the areas in which you will never be an A player, so you don’t feel threatened.

I have never been an A player manager, so we had to build around me

a system that incorporated better people in those areas As someone who started and grew a business, it was at times diffi cult to recognize that I had

to begin to follow sets of rules that I had previously rejected My role within the organization was changing; I was still spending most of my time in areas

in which I was an A player, but to exist within the company, I had to modify the behavior that was now problematic, but worked when we were smaller.All new hires come into our company on a probationary three- month period They are managed during this timeframe to be certain that they are suitable for the job for which they were hired It is best to be honest early in the relationship so the employee can fi nd a place where they have a better chance of success An employee who may be a B or C in one place could be

an A in another place or in a different role Again, we found this with our corporate hires They were great at the place from which they were coming, but not very good with us

When we are having problems with an employee’s work effort, we put them on a performance- review plan This is a 90-day program during which

we set clear expectations and meet weekly to manage back to him or her If the employee is still not meeting standards, then we need to help him or her

fi nd a new place to work It seems roughly a quarter of the people who have been put on performance review raise their game to a level by which they become A or solid B players If someone does succeed after a performance improvement plan, it is a signal to us that we were not clear enough in our expectations for the employee If someone does not succeed after this type of program, they were probably simply a bad hire for us

If I were to stereotype from the talks to planners that I have given around the country, I think most wealth- management businesses wait too long to make a hire and then don’t hire the level of person that they need to perform the job The employees that you are hiring should create operating leverage for you, but only if you train them to perform If you are skimping on the level of employee, you will inevitably have to be more involved in their train-ing Higher paid, higher caliber employees may require less input and actually

be more cost effective

“There is a physical limit to the number of active client relationships

an adviser can manage well For your fi rm to grow, you’ll need to add capacity—more people—and leverage your business better From a value

you start on it and are successful at it, you no longer have control over it

I used to think that we would stay a small, boutique shop As we hired better people and did more for our clients, we acquired more clients who needed to

be served by better people These better people need an opportunity to grow within the organization so structure needed to be created The whole thing becomes like the song about the little old lady who swallowed a fl y, then a spider to eat the fl y, a bird to catch the spider, and on and on

I mentioned earlier some of the testing tools that we use for partner level We use some of those tools for those applying for entry- level posi-tions We also use the Kolbe Index to test interviewee strengths in areas

such as fact fi nding, quick start, and others Most important, though,

is that we don’t interview people prior to testing them This has made

a major difference in our hiring practices We receive the resume to see whether we wish to go further From there, we then administer the tests

If they test well, we then call them in for an interview While this concept costs a bit more, it really helps us avoid falling in love with candidates without the skill set to do the job and then creating excuses as to why they tested the way they did

Organizational Chart

We have had various organizational charts over the years, but as our business

has grown, we have had to distinguish between doing the work of the nization—comprehensive wealth management—and doing the work on the

orga-organization—managing the business When we were smaller, the principals were responsible for both areas This is no longer the case

Of the Organization

Each new client has a team put together just for them This team consists

of a principal, a lead, a support, and an investment analyst In addition, some administrative positions work with all clients on paperwork, scheduling, and so on Generally, the principal would be considered strategic (integrat-ing the big- picture issues with the day- to- day nuts and bolts), the lead more tactical (performing analysis and making recommendations), and the sup-port more administrative (setting up the work that needs to be analyzed)